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Treasury & Capital Markets
Are e-wallets worth the investment?
With e-wallets systems often lacking interoperability, payment networks are aiming to standardize cashless payments within domestic economies to enhance compatibility
Darryl Yu 19 Oct 2018

In an effort to digitalize the overall treasury processes of a company, several banks have looked at partnering with e-wallet providers to eliminate physical cash from corporate transactions. Whether it be paying a company's farmers or collecting from customers, an e-wallet solution aims to reduce physical cash handling costs and improve reconciliation within the organization.

Despite the buzz and excitement around the emergence of e-wallets, they still play a small part in the overall non-cash payment ecosystem. That's based on the recently released World Payments Report 2018, which estimates that e-wallet transactions make up only 8.6% of global non-cash transactions. In 2016 alone, there were around 41.8 billion transactions conducted on an e-wallet system.

With such a low rate of penetration why have some banks jumped the gun when it comes to working with e-wallet companies?

This appears to be the case in some markets where governments are heavily pushing industry-wide payment infrastructure networks rather than a particular e-wallet solution. With a focus on encouraging financial inclusion and convenience, markets such as Australia, Hong Kong, Singapore and Thailand have rolled out peer-to-peer systems that allow users to transfer funds among each other using a unique identifier, typically a mobile number or email.

The launch of these government-backed networks could dampen the prospects of e-wallet providers and banks collaborating with them. Acting as an intermediary between the payor and payee, e-wallets typically are unable to carry out direct debit and deposit between bank accounts, unlike government networks. In other words, individuals using an e-wallet would need to be wary about topping up their wallet before conducting a transaction.

E-wallets also generally lack interoperability - they are not compatible across different systems or products. This becomes cumbersome in markets where there are a number of e-wallets. India, for example, has a series of e-wallets supported by both financial technology and banking operators.

However, in China e-wallets backed by technology giants Alibaba and Tencent have cemented themselves in the domestic payments space. Out of the 41.8 billion e-wallet transactions estimated globally, around 16.3 billion of them were done within China. The popular use of e-wallets is a factor any treasurer or CFO operating in the country needs to prepare for and should consider whether or not their banking partner has connectivity to such wallets.

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